Authors: Aleksandr Vovk and Alena Pedchenko
Especially for Lawyer and Law No. 33, LIGA:ZAKON
We have analyzed the Law of Ukraine On Currency and Currency Operations (hereinafter referred to as the Law on Currency) regarding its impact on Foreign Economic Activities and the improvement of the investment climate in Ukraine, and we think that, on the one hand, it will indeed increase the investment attractiveness of our state, but we must understand that investments don’t come instantly. On the other hand, opening up opportunities to freely invest abroad can result in a large leap in the capital export, especially in the first months of the operation of this Law, and such imbalances can lead to significant pressure on the exchange rate within the country.
Therefore, in order to prevent this, the National Bank was afforded the right to leave the current restrictions in force until the balance of payments is stabilized and to apply new restrictions if necessary.
At present, the system of currency regulation of Ukraine is under reforming. Currently, the old legislation that regulates the issues arising in this area is applied, with the transitional period underway, during which the new Law on Currency enters into force. Note that during this period, all regulatory legal acts of this industry are being brought into compliance with the requirements of the new Law. For example, the National Bank of Ukraine is charged with the obligation to adopt regulatory documents necessary to implement the provisions of the adopted Law.
Consequently, the question arises: how will the system of currency regulation exist in Ukraine after the transitional period is over? How will the updated legislative base impact the foreign economic activities? And will the Law of Ukraine on Currency give the Ukrainians freedom in carrying out currency operations?
In order to assess the quality of the new legislation and to determine its impact on foreign economic activities in the future, it is necessary to carry out a comparative analysis of the old legislation currently in force and the new one that will enter into force six months later.
At this stage, before the new law entered into force, the Decree of the CMU On the System of Currency Regulation and Currency Control remains in effect, as well as other auxiliary regulatory legal acts that govern importing and exporting enterprises. It should be noted that the current regulatory documents set fairly strict requirements for carrying out currency operations, thus complicating the “life” of business. The new legislation will be able to in some degree let the sphere of currency operations loose.
The new rules enable the Ukrainians to invest abroad without obtaining individual currency licenses. Now, implementing such an investment requires obtaining a license from the NBU. In addition, a number of new principles will be introduced to facilitate life in the field of currency operations. The currency control over operations for up to UAH 150 thousand will be canceled.
In other words, the currency surveillance of operations below the amount of financial monitoring is completely abolished; this introduction makes the criteria for the risk of legalization (laundering) of proceeds from crime or financing of terrorism or financing the proliferation of weapons of mass destruction no longer valid.
We note that these criteria do not apply to the above operations only. So, it will be possible to freely export and import goods and services for small amounts without any currency control. We should not forget about the general licenses, as long as they exist, but they will become a thing of the past after the transition period is over.
Let us remind you that during the crisis of 2014, the NBU banned opening accounts with foreign financial institutions and carrying out currency operations through them, except for the repayment of loans. Subsequently, some exceptions were added to the ban in such emergency situations as the need for treatment abroad. The regulator began to restore permissions for currency transfers abroad only in the summer of 2017. At the same time, it allowed moving a limited amount of foreign currency out of the country: no more than USD 50 thousand a year. It required obtaining an individual electronic license from the regulator.
So, as we can see, the principle “which is not prohibited by law is permitted” that has never existed before is being introduced now. In addition, when loans are attracted from abroad, they are not required to be registered with the NBU, as they are now. This is another plus for business.
The current currency control will be replaced by the currency surveillance. However, operations in the amount of UAH 150,000 will be subject to currency surveillance for compliance with the requirements of currency legislation, as required by legislation in the field of preventing and combating the legalization (laundering) of proceeds from crime or financing of terrorism, or financing the proliferation of weapons of mass destruction to implement the mandatory financial monitoring.
Another positive aspect of the series of introductions is the simplification of foreign economic activities. Thus, the maximum term (deadline) of 180 days for settlements under export and import contracts, which has been set for business, is canceled. In general, such introduction will allow avoiding sanctions, which are applied today for violation of the specified terms. At the same time, selling currency earnings is no longer required, so companies will be able to buy currency not being bound by a certain export contract. But this situation is ambiguous, since when there are signs of the unstable financial state of the banking system, the worsening of the balance of payments of Ukraine, or the circumstances threatening the stability of the banking or financial system of the state, the NBU has the right to apply such a measure of protection as setting a deadline for settlements on export and import of goods. So, the function of setting the deadline for settlements on export and import of goods is preserved to a certain extent.
In this case, the violation by residents of the deadline for settlements on export and import set by the NBU as part of taking protective measures is punishable by a fine in the amount of 0.3% of the amount of money not received under the contract.
The peculiarity of the adopted introductions is the repeal of Article 37 of the Law of Ukraine on Foreign Economic Activity, which is still valid today and provides for the application of a number of sanctions for violation of the currency regulation legislation. The enforcement actions that can now be applied to violators include:
- Suspension of foreign economic activity.
- Introduction of the individual licensing regime.
- Application of penalties.
As the new Law enters into force, such types of sanctions will be called off. But one should not be quick to rejoice in such changes since the enforcement actions can still be applied, but it is yet unknown for what kind of violations. This is confirmed by the fact that the SFS can apply penalties to legal entities in the amount of up to 100% of the amount of an operation conducted in violation of the currency legislation. At the same time, such penalties can be applied within six months from the date the violation is detected, but not later than three years from the date of its commissioning. In addition, the size of the penalties to be imposed is established by the SFS.
It can be anticipated that once the new Law of Ukraine on Currency enters into force, the SFS will acquire the right to inspect the money service operators and to demand from them all the necessary documents on these operations. But until now, the specified body has had no powers of the kind, as they were assigned to the NBU. However, the SFS will take the specified actions in relation to legal entities and individuals (residents and non-residents of Ukraine) in accordance with the Law of Ukraine On the Main Principles of State Supervision (Control) in the Sphere of Economic Activity. In order for the SFS and the NBU to be able to determine the compliance of the conducted currency operations with the Law, it is planned to develop risk criteria for these operations and their ranking.
In our opinion, the SFS also has the right to impose sanctions for violation of the time limits for payment of taxes in this sphere. In turn, the NBU has the right to impose penalties on non-bank financial companies and postal operators in the amount of no more than 20% of the equity of such companies. We can see that in general, the situation in the sphere of foreign economic activity will improve, but there will still remain certain disadvantages that have been to this day.
Also, along with the body of the Law of Ukraine on Currency, changes to the following laws of Ukraine come into effect:
1. The Code of Administrative Offenses: fines have been increased for illegal exchange and purchase/sale of currency values ​​under Article 162; Article 1622 on the illegal opening and use of foreign accounts has been excluded; Article 1621 on evasion from the return of proceeds in foreign currency has been canceled.
2. The Law On Payment Systems and Money Transfers in Ukraine: in addition to the previously adopted Law of Ukraine On Amendments to Certain Laws of Ukraine Regarding the Encouragement of Foreign Investment, amendments have been made allowing any nonresident legal entity or investment fund to open accounts in Ukraine.
Let us recall that now, these entities have the right to open only investment accounts with a special mode of use.
3. Banks are allowed to provide individuals and legal entities with currency buying and selling services remotely, i.e. online, without physically attending the office. The Law of Ukraine on Currency has obligated the National Bank to accept the regulatory legal acts by February 7, 2019, aimed at implementing the requirements of the new legislation, and to take protective measures provided for by the Law adopted. It is unclear what these regulatory legal acts will be.
If we talk about the system of currency regulation currently available in Ukraine, we consider the requirements for the importers and exporters to be quite strict. This is confirmed by the above theses to compare the current currency legislation with the law to replace it in the future (five months after the end of the transition period). Despite the fact that the new legislation is not without flaws, it still makes significant changes in foreign economic activities, which are obviously very useful for the business sector.
CONCLUSION:
In the end, it should be noted that the Law of Ukraine On Currency and Currency Operations is an important step, but not the only one necessary for attracting investment in Ukraine and economic growth. To attract truly significant investments, it is necessary to further improve and modernize the Law of Ukraine on Currency, change the electoral legislation, conduct a real reforming of the judicial branch and the tax system, reduce corruption, open up the market for land, and the like.
Anyway, we are convinced that the adoption of the Law of Ukraine on Currency is a positive impulse for all participants of foreign economic activity in Ukraine.

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